The rating agency said the sovereign credit ratings on India reflect the economy’s above-average long-term real GDP growth, sound external profile, and evolving monetary settings.
“India’s democratic institutions promote policy stability and compromise and also underpin the ratings. These strengths are balanced against vulnerabilities stemming from the country’s low per capita income and weak fiscal settings, including consistently elevated general government deficits and indebtedness,” S&P Global said in a release.
The rating agency further added that India’s economy will experience a record contraction in fiscal 2021 largely owing to the global Covid-19 pandemic, and it expects real GDP growth to recover from fiscal 2021 onwards, but warned that the country’s fiscal setting could deteriorate further this year.
“India’s weak fiscal settings will worsen further this year, constraining the government’s ability to aid the economy. At the same time, the country’s external settings have improved, helped by the central bank’s rapid accumulation of foreign exchange reserves,” it added.
It said the stable outlook reflects the ratings agency’s expectation that India’s economy will recover following the resolution of the Covid-19 pandemic, and that the country’s strong external settings will act as a buffer against financial strains despite elevated government funding needs over the next 24 months.